Edgar Filing: IRON MOUNTAIN INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q



(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2016

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission file number 1-13045

IRON MOUNTAIN INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)



Delaware (State or other Jurisdiction of Incorporation or Organization)	23-2588479 (I.R.S. Employer Identification No.)

One Federal Street, Boston, Massachusetts 02110

(Address of Principal Executive Offices, Including Zip Code)

(617) 535-4766

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ý	Accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Number of shares of the registrant's Common Stock outstanding at July 29, 2016: 263,248,643

Table of Contents

IRON MOUNTAIN INCORPORATED

Index



	Page
PART I—FINANCIAL INFORMATION
Item 1—Unaudited Consolidated Financial Statements	3

Consolidated Balance Sheets at December 31, 2015 and June 30, 2016 (Unaudited)	3

Consolidated Statements of Operations for the Three Months Ended June 30, 2015 and 2016 (Unaudited)	4

Consolidated Statements of Operations for the Six Months Ended June 30, 2015 and 2016 (Unaudited)	5

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2015 and 2016 (Unaudited)	6

Consolidated Statements of Equity for the Six Months Ended June 30, 2015 and 2016 (Unaudited)	7

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2016 (Unaudited)	8

Notes to Consolidated Financial Statements (Unaudited)	9

Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations	55

Item 4—Controls and Procedures	85

PART II—OTHER INFORMATION

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	85

Item 6—Exhibits	86

Signatures	87

Table of Contents

Part I. Financial Information

Item 1. Unaudited Consolidated Financial Statements

IRON MOUNTAIN INCORPORATED

CONSOLIDATED BALANCE SHEETS

(In Thousands, except Share and Per Share Data)

(Unaudited)



	December 31, 2015			June 30, 2016
ASSETS
Current Assets:
Cash and cash equivalents	$	128,381		$	236,989
Accounts receivable (less allowances of $31,447 and $41,372 as of December 31, 2015 and June 30, 2016, respectively)	564,401			710,526
Deferred income taxes	22,179			5,190
Prepaid expenses and other	142,951			192,697
Assets held for sale (see Note 10)	—			143,968
Total Current Assets	857,912			1,289,370
Property, Plant and Equipment:
Property, plant and equipment	4,744,236			5,540,949
Less—Accumulated depreciation	(2,247,078		)	(2,344,701		)
Property, Plant and Equipment, Net	2,497,158			3,196,248
Other Assets, Net:
Goodwill	2,360,978			3,840,090
Customer relationships and customer inducements	603,314			1,310,809
Other	31,225			104,537
Total Other Assets, Net	2,995,517			5,255,436
Total Assets	$	6,350,587		$	9,741,054
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of long-term debt	$	88,068		$	112,509
Accounts payable	219,590			220,119
Accrued expenses	351,061			415,536
Deferred revenue	183,112			212,231
Liabilities held for sale (see Note 10)	—			21,634
Total Current Liabilities	841,831			982,029
Long-term Debt, Net of Current Portion	4,757,610			6,103,058
Other Long-term Liabilities	71,844			86,367
Deferred Rent	95,693			109,044
Deferred Income Taxes	55,002			214,526
Commitments and Contingencies (see Note 8)
Equity:
Iron Mountain Incorporated Stockholders' Equity:
Preferred stock (par value $0.01; authorized 10,000,000 shares; none issued and outstanding)	—			—
Common stock (par value $0.01; authorized 400,000,000 shares; issued and outstanding 211,340,296 shares and 263,023,040 shares as of December 31, 2015 and June 30, 2016, respectively)	2,113			2,630
Additional paid-in capital	1,623,863			3,492,658
(Distributions in excess of earnings) Earnings in excess of distributions	(942,218		)	(1,124,924		)
Accumulated other comprehensive items, net	(174,917		)	(149,289		)
Total Iron Mountain Incorporated Stockholders' Equity	508,841			2,221,075
Noncontrolling Interests	19,766			24,955
Total Equity	528,607			2,246,030
Total Liabilities and Equity	$	6,350,587		$	9,741,054

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, except Per Share Data)

(Unaudited)



	Three Months Ended June 30,
	2015		2016
Revenues:
Storage rental	$	461,209	$	538,682
Service	298,525		345,066
Total Revenues	759,734		883,748
Operating Expenses:
Cost of sales (excluding depreciation and amortization)	326,283		395,649
Selling, general and administrative	215,885		277,077
Depreciation and amortization	87,549		115,022
Loss (Gain) on disposal/write-down of property, plant and equipment (excluding real estate), net	515		(626		)
Total Operating Expenses	630,232		787,122
Operating Income (Loss)	129,502		96,626
Interest Expense, Net (includes Interest Income of $831 and $2,144 for the three months ended June 30, 2015 and 2016, respectively)	66,087		74,866
Other Expense (Income), Net	2,004		25,641
Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes	61,411		(3,881		)
Provision (Benefit) for Income Taxes	7,404		10,839
Income (Loss) from Continuing Operations	54,007		(14,720		)
Income (Loss) from Discontinued Operations, Net of Tax	—		1,587
Net Income (Loss)	54,007		(13,133		)
Less: Net Income (Loss) Attributable to Noncontrolling Interests	677		835
Net Income (Loss) Attributable to Iron Mountain Incorporated	$	53,330	$	(13,968	)
Earnings (Losses) per Share—Basic:
Income (Loss) from Continuing Operations	$	0.26	$	(0.06	)
Total Income (Loss) from Discontinued Operations	$	—	$	0.01
Net Income (Loss) Attributable to Iron Mountain Incorporated	$	0.25	$	(0.06	)
Earnings (Losses) per Share—Diluted:
Income (Loss) from Continuing Operations	$	0.25	$	(0.06	)
Total Income (Loss) from Discontinued Operations	$	—	$	0.01
Net Income (Loss) Attributable to Iron Mountain Incorporated	$	0.25	$	(0.06	)
Weighted Average Common Shares Outstanding—Basic	210,699		246,387
Weighted Average Common Shares Outstanding—Diluted	212,077		246,387
Dividends Declared per Common Share	$	0.4752	$	0.5174

The accompanying notes are an integral part of these consolidated financial statements.

IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, except Per Share Data)

(Unaudited)



	Six Months Ended June 30,
	2015		2016
Revenues:
Storage rental	$	920,081	$	999,893
Service	588,939		634,545
Total Revenues	1,509,020		1,634,438
Operating Expenses:
Cost of sales (excluding depreciation and amortization)	647,937		721,754
Selling, general and administrative	412,299		484,843
Depreciation and amortization	173,500		202,226
Loss (Gain) on disposal/write-down of property, plant and equipment (excluding real estate), net	848		(1,077		)
Total Operating Expenses	1,234,584		1,407,746
Operating Income (Loss)	274,436		226,692
Interest Expense, Net (includes Interest Income of $1,645 and $3,431 for the six months ended June 30, 2015 and 2016, respectively)	130,985		141,928
Other Expense (Income), Net	24,353		13,704
Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes	119,098		71,060
Provision (Benefit) for Income Taxes	23,352		22,739
Income (Loss) from Continuing Operations	95,746		48,321
Income (Loss) from Discontinued Operations, Net of Tax	—		1,587
Net Income (Loss)	95,746		49,908
Less: Net Income (Loss) Attributable to Noncontrolling Interests	1,320		1,102
Net Income (Loss) Attributable to Iron Mountain Incorporated	$	94,426	$	48,806
Earnings (Losses) per Share—Basic:
Income (Loss) from Continuing Operations	$	0.45	$	0.21
Total Income (Loss) from Discontinued Operations	$	—	$	0.01
Net Income (Loss) Attributable to Iron Mountain Incorporated	$	0.45	$	0.21
Earnings (Losses) per Share—Diluted:
Income (Loss) from Continuing Operations	$	0.45	$	0.21
Total Income (Loss) from Discontinued Operations	$	—	$	0.01
Net Income (Loss) Attributable to Iron Mountain Incorporated	$	0.45	$	0.21
Weighted Average Common Shares Outstanding—Basic	210,468		228,957
Weighted Average Common Shares Outstanding—Diluted	212,163		230,029
Dividends Declared per Common Share	$	0.9499	$	1.0051

The accompanying notes are an integral part of these consolidated financial statements.

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IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

(Unaudited)



	Three Months Ended June 30,
	2015		2016
Net Income (Loss)	$	54,007	$	(13,133	)
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustments	1,000		2,789
Total Other Comprehensive Income (Loss)	1,000		2,789
Comprehensive Income (Loss)	55,007		(10,344		)
Comprehensive Income (Loss) Attributable to Noncontrolling Interests	345		753
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated	$	54,662	$	(11,097	)



	Six Months Ended June 30,
	2015			2016
Net Income (Loss)	$	95,746		$	49,908
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustments	(55,175		)	26,767
Market Value Adjustments for Securities	23			(734		)
Total Other Comprehensive (Loss) Income	(55,152		)	26,033
Comprehensive Income (Loss)	40,594			75,941
Comprehensive Income (Loss) Attributable to Noncontrolling Interests	887			1,507
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated	$	39,707		$	74,434

The accompanying notes are an integral part of these consolidated financial statements.

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IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF EQUITY

(In Thousands, except Share Data)

(Unaudited)



				Iron Mountain Incorporated Stockholders' Equity

												Accumulated Other Comprehensive Items, Net
				Common Stock			Additional Paid-in Capital		(Distributions in Excess of Earnings) Earnings in Excess of Distributions						Noncontrolling Interests
	Total			Shares	Amounts		Additional Paid-in Capital								Noncontrolling Interests
Balance, December 31, 2014	$	869,955		209,818,812	$	2,098	$	1,588,841	$	(659,553	)	$	(75,031	)	$	13,600
Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax benefit of $260	14,447			979,708	10		14,437		—			—			—
Parent cash dividends declared	(201,722		)	—	—		—		(201,722		)	—			—
Currency translation adjustment	(55,175		)	—	—		—		—			(54,742		)	(433		)
Market value adjustments for securities	23			—	—		—		—			23			—
Net income (loss)	95,746			—	—		—		94,426			—			1,320
Noncontrolling interests dividends	(1,049		)	—	—		—		—			—			(1,049		)
Balance, June 30, 2015	$	722,225		210,798,520	$	2,108	$	1,603,278	$	(766,849	)	$	(129,750	)	$	13,438



				Iron Mountain Incorporated Stockholders' Equity

												Accumulated Other Comprehensive Items, Net
				Common Stock			Additional Paid-in Capital		(Distributions in Excess of Earnings) Earnings in Excess of Distributions						Noncontrolling Interests
	Total			Shares	Amounts		Additional Paid-in Capital								Noncontrolling Interests
Balance, December 31, 2015	$	528,607		211,340,296	$	2,113	$	1,623,863	$	(942,218	)	$	(174,917	)	$	19,766
Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax benefit of $29	34,286			1,449,332	15		34,271		—			—			—
Issuance of shares in connection with the acquisition of Recall Holdings Limited (see Note 4)	1,835,026			50,233,412	502		1,834,524		—			—			—
Parent cash dividends declared	(231,512		)	—	—		—		(231,512		)	—			—
Currency translation adjustment	26,767			—	—		—		—			26,362			405
Market value adjustments for securities	(734		)	—	—		—		—			(734		)	—
Net income (loss)	49,908			—	—		—		48,806			—			1,102
Noncontrolling interests equity contributions	1,299			—	—		—		—			—			1,299
Noncontrolling interests dividends	(1,123		)	—	—		—		—			—			(1,123		)
Purchase of noncontrolling interests	3,506			—	—		—		—			—			3,506
Balance, June 30, 2016	$	2,246,030		263,023,040	$	2,630	$	3,492,658	$	(1,124,924	)	$	(149,289	)	$	24,955

The accompanying notes are an integral part of these consolidated financial statements.

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IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)



	Six Months Ended June 30,
	2015			2016
Cash Flows from Operating Activities:
Net income (loss)	$	95,746		$	49,908
(Income) loss from discontinued operations	—			(1,587		)
Adjustments to reconcile net income (loss) to cash flows from operating activities:
Depreciation	151,015			168,920
Amortization (includes deferred financing costs and bond discount of $4,360 and $5,652, for the six months ended June 30, 2015 and 2016, respectively)	26,845			38,958
Stock-based compensation expense	14,777			15,913
(Benefit) Provision for deferred income taxes	(9,088		)	(9,902		)
Loss on early extinguishment of debt, net	—			9,283
Loss (Gain) on disposal/write-down of property, plant and equipment, net (including real estate)	848			(1,077		)
Foreign currency transactions and other, net	(2,763		)	11,478
Changes in Assets and Liabilities (exclusive of acquisitions):
Accounts receivable	4,943			1,746
Prepaid expenses and other	3,992			(41,020		)
Accounts payable	(22,819		)	(39,377		)
Accrued expenses and deferred revenue	(81,091		)	8,508
Other assets and long-term liabilities	(2,667		)	(6,146		)
Cash Flows from Operating Activities - Continuing Operations	179,738			205,605
Cash Flows from Operating Activities - Discontinued Operations	—			1,145
Cash Flows from Operating Activities	179,738			206,750
Cash Flows from Investing Activities:
Capital expenditures	(139,356		)	(163,665		)
Cash paid for acquisitions, net of cash acquired	(21,714		)	(276,553		)
Decrease in restricted cash	33,860			—
Acquisition of customer relationships	(15,515		)	(10,324		)
Customer inducements	(8,692		)	(6,422		)
Net proceeds from divestments (see Note 10)	—			53,950
Proceeds from sales of property and equipment and other, net (including real estate)	805			371
Cash Flows from Investing Activities - Continuing Operations	(150,612		)	(402,643		)
Cash Flows from Investing Activities - Discontinued Operations	—			90
Cash Flows from Investing Activities	(150,612		)	(402,553		)
Cash Flows from Financing Activities:
Repayment of revolving credit, term loan and bridge facilities and other debt	(4,915,045		)	(7,387,114		)
Proceeds from revolving credit, term loan and bridge facilities and other debt	5,075,035			7,186,805
Net proceeds from sales of senior notes	—			738,750
Debt financing and equity contribution from noncontrolling interests	—			1,299
Debt repayment and equity distribution to noncontrolling interests	(830		)	(843		)
Parent cash dividends	(203,229		)	(232,596		)
Net proceeds (payments) associated with employee stock-based awards	9,454			18,641
Excess tax benefit (deficiency) from stock-based compensation	260			29
Payment of debt financing and stock issuance costs	(1,114		)	(12,032		)
Cash Flows from Financing Activities - Continuing Operations	(35,469		)	312,939
Cash Flows from Financing Activities - Discontinued Operations	—			—
Cash Flows from Financing Activities	(35,469		)	312,939
Effect of Exchange Rates on Cash and Cash Equivalents	(2,492		)	(8,528		)
(Decrease) Increase in Cash and Cash Equivalents	(8,835		)	108,608
Cash and Cash Equivalents, Beginning of Period	125,933			128,381
Cash and Cash Equivalents, End of Period	$	117,098		$	236,989
Supplemental Information:
Cash Paid for Interest	$	129,518		$	136,351
Cash Paid for Income Taxes, net	$	23,151		$	28,133
Non-Cash Investing and Financing Activities:
Capital Leases	$	21,481		$	34,383
Accrued Capital Expenditures	$	31,116		$	40,801
Dividends Payable	$	4,675		$	4,493
Fair Value of Stock Issued for Recall Transaction (see Note 4)	$	—		$	1,835,026

The accompanying notes are an integral part of these consolidated financial statements.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(1) General

The interim consolidated financial statements are presented herein and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year. Iron Mountain Incorporated, a Delaware corporation ("IMI"), and its subsidiaries ("we" or "us") store records, primarily physical records and data backup media, and provide information management services in various locations throughout North America, Europe, Latin America, Asia Pacific and Africa. We have a diversified customer base consisting of commercial, legal, banking, healthcare, accounting, insurance, entertainment and government organizations.

The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to those rules and regulations, but we believe that the disclosures included herein are adequate to make the information presented not misleading. The Consolidated Financial Statements and Notes thereto, which are included herein, should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 2015 included in our Annual Report on Form 10-K filed with the SEC on February 26, 2016 (our "Annual Report").

We have been organized and have operated as a real estate investment trust for federal income tax purposes ("REIT") effective for our taxable year beginning January 1, 2014.

On May 2, 2016 (Sydney, Australia time), we completed the acquisition of Recall Holdings Limited ("Recall") pursuant to the Scheme Implementation Deed, as amended, with Recall (the "Recall Transaction"). At the closing of the Recall Transaction, we paid approximately $331,800 and issued 50,233,412 shares of our common stock which, based on the closing price of our common stock as of April 29, 2016 (the last day of trading on the New York Stock Exchange ("NYSE") prior to the closing of the Recall Transaction) of $36.53 per share, resulted in a total purchase price to Recall shareholders of approximately $2,166,900. See Note 4.

(2) Summary of Significant Accounting Policies

This Note 2 to Notes to Consolidated Financial Statements provides information and disclosure regarding certain of our significant accounting policies and should be read in conjunction with Note 2 to Notes to Consolidated Financial Statements included in our Annual Report, which may provide additional information with regard to the accounting policies set forth herein and other of our significant accounting policies.

a. Foreign Currency

Local currencies are the functional currencies for our operations outside the United States, with the exception of certain foreign holding companies and our financing centers in Europe, whose functional currency is the United States dollar. In those instances where the local currency is the functional currency, assets and liabilities are translated at period-end exchange rates, and revenues and expenses are translated at average exchange rates for the applicable period. Resulting translation adjustments are reflected in the accumulated other comprehensive items, net component of Iron Mountain Incorporated Stockholders' Equity and Noncontrolling Interests in the accompanying Consolidated Balance Sheets. The gain or loss on foreign currency transactions, calculated as the difference between the historical exchange rate and the exchange rate at the applicable measurement date, including those related to (1) our previously outstanding 6³/₄% Euro Senior Subordinated Notes due 2018 (the "6³/₄% Notes"), (2) borrowings in certain foreign currencies under our Revolving Credit Facility (as defined in Note 5) and (3) certain foreign currency denominated intercompany obligations of our foreign subsidiaries to us and between our foreign subsidiaries, which are not considered permanently invested, are included in other expense (income), net, in the accompanying Consolidated Statements of Operations.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

Total loss on foreign currency transactions for the three and six months ended June 30, 2015 and 2016 is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
Total loss on foreign currency transactions	$	1,656	$	17,193	$	23,922	$	4,651

b. Goodwill and Other Intangible Assets

Goodwill and indefinite-lived intangible assets

We have selected October 1 as our annual goodwill impairment review date. We performed our most recent annual goodwill impairment review as of October 1, 2015 and concluded there was no impairment of goodwill at such date. As of December 31, 2015, no factors were identified that would alter our October 1, 2015 goodwill analysis. While several of our reporting units were impacted by our acquisition of Recall, no factors were identified as of June 30, 2016 that would indicate an impairment of goodwill. In making this assessment, we relied on a number of factors including operating results, business plans, anticipated future cash flows, transactions and marketplace data. There are inherent uncertainties related to these factors and our judgment in applying them to the analysis of goodwill impairment. When changes occur in the composition of one or more reporting units, the goodwill is reassigned to the reporting units affected based on their relative fair values.

Refer to our Annual Report for information regarding the composition of our reporting units as of December 31, 2015. The carrying value of goodwill, net for each of our reporting units as of December 31, 2015 was as follows:



	Carrying Value as of December 31, 2015
North American Records and Information Management(1)	$	1,342,723
North American Secure Shredding(1)	73,021
North American Data Management(2)	369,907
Adjacent Businesses - Data Centers(3)	—
Adjacent Businesses - Consumer Storage(3)	4,636
Adjacent Businesses - Fine Arts(3)	21,550
UKI(4)	260,202
Continental Western Europe(4)	63,442
Emerging Markets - Europe(5)	87,378
Latin America(5)	78,537
Australia(5)	47,786
Southeast Asia(5)	5,683
India(5)	6,113
Total	$	2,360,978

_______________________________________________________________________________


(1)	This reporting unit is included in the North American Records and Information Management Business segment.


(2)	This reporting unit is included in the North American Data Management Business segment.


(3)	This reporting unit is included in the Corporate and Other Business segment.


(4)	This reporting unit is included in the Western European Business segment.


(5)	This reporting unit is included in the Other International Business segment.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

The acquisition of Recall, which is more fully disclosed in Note 4, impacted our reporting units as of June 30, 2016 as follows:


•	North American Records and Information Management - includes the goodwill associated with the records and information management businesses of Recall in the United States and Canada.


•	North American Secure Shredding - includes the goodwill associated with the secure shredding businesses of Recall in the United States and Canada.


•	North American Data Management - includes the goodwill associated with the data management businesses of Recall in the United States and Canada.


•	UKI - includes the goodwill associated with the operations of Recall in the United Kingdom.


•	Continental Western Europe - includes the goodwill associated with the operations of Recall in Belgium, France, Germany, Spain and Switzerland, as well as the goodwill associated with the document management solutions (“DMS”) operations of Recall in Sweden.

•

Northern and Eastern Europe - this reporting unit consists of our former Emerging Markets - Europe reporting unit (as described in our Annual Report), and includes the goodwill associated with the operations of Recall in Denmark, Finland and Norway, as well as the goodwill associated with the records and information management operations of Recall in Sweden. This reporting unit is included in the Other International Business segment.


•	Latin America - includes the goodwill associated with the operations of Recall in Brazil and Mexico.


•	Australia and New Zealand - this reporting unit consists of the goodwill associated with the Australia Retained Business (as defined in Note 4), which was a component of our former Australia reporting unit, as well as the operations of Recall in Australia and New Zealand. This reporting unit is included in the Other International Business segment.


•	Southeast Asia - includes the goodwill associated with the operations of Recall in China, Hong Kong, Malaysia, Singapore, Taiwan and Thailand.


•	Africa and India - includes the goodwill associated with the operations of Recall in India.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

The carrying value of goodwill, net for each of our reporting units as of June 30, 2016 is as follows:



	Carrying Value as of June 30, 2016
North American Records and Information Management	$	2,081,192
North American Secure Shredding	151,187
North American Data Management	503,913
Adjacent Businesses - Data Centers	—
Adjacent Businesses - Consumer Storage	4,636
Adjacent Businesses - Fine Arts	22,911
UKI	337,012
Continental Western Europe	116,290
Northern and Eastern Europe(1)	138,021
Latin America	141,145
Australia and New Zealand	150,727
Southeast Asia	174,802
Africa and India(2)	18,254
Total	$	3,840,090

_______________________________________________________________________________

(1) Included in this reporting unit at June 30, 2016 is the goodwill associated with our March 2016 acquisition of Archyvu Sistemos as more fully disclosed in Note 4.

(2) Included in this reporting unit at June 30, 2016 is the goodwill associated with our March 2016 acquisition of Docufile Holdings Proprietary Limited as more fully disclosed in Note 4.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

The changes in the carrying value of goodwill attributable to each reportable operating segment for the six months ended June 30, 2016 are as follows:



	North American Records and Information Management Business			North American Data Management Business		Western European Business			Other International Business			Corporate and Other Business		Total Consolidated
Gross Balance as of December 31, 2015	$	1,620,425		$	423,606	$	381,149		$	225,626		$	26,186	$	2,676,992
Deductible goodwill acquired during the year	—			—		—			—			—		—
Non-deductible goodwill acquired during the year	812,945			132,251		154,750			425,426			215		1,525,587
Goodwill reclassified as assets held for sale (see Note 10)	(3,332		)	—		—			(40,089		)	—		(43,421		)
Fair value and other adjustments(1)	(157		)	—		—			(515		)	1,146		474
Currency effects	7,649			1,873		(25,706		)	12,563			—		(3,621		)
Gross Balance as of June 30, 2016	$	2,437,530		$	557,730	$	510,193		$	623,011		$	27,547	$	4,156,011
Accumulated Amortization Balance as of December 31, 2015	$	204,681		$	53,699	$	57,505		$	129		$	—	$	316,014
Currency effects	470			118		(614		)	(67		)	—		(93		)
Accumulated Amortization Balance as of June 30, 2016	$	205,151		$	53,817	$	56,891		$	62		$	—	$	315,921
Net Balance as of December 31, 2015	$	1,415,744		$	369,907	$	323,644		$	225,497		$	26,186	$	2,360,978
Net Balance as of June 30, 2016	$	2,232,379		$	503,913	$	453,302		$	622,949		$	27,547	$	3,840,090
Accumulated Goodwill Impairment Balance as of December 31, 2015	$	85,909		$	—	$	46,500		$	—		$	—	$	132,409
Accumulated Goodwill Impairment Balance as of June 30, 2016	$	85,909		$	—	$	46,500		$	—		$	—	$	132,409

_______________________________________________________________________________


(1)	Total fair value and other adjustments primarily include net adjustments of $656 related to property, plant and equipment and customer relationship intangible assets, partially offset by $182 of cash received related to certain acquisitions completed in 2015.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

Finite-lived intangible assets

Customer relationship intangible assets, which are acquired through either business combinations or acquisitions of customer relationships, are amortized over periods ranging from 10 to 30 years. The value of customer relationship intangible assets is calculated based upon estimates of their fair value utilizing an income approach based on the present value of expected future cash flows.

Costs related to the acquisition of large volume accounts are capitalized. Free intake costs to transport boxes to one of our facilities, which include labor and transportation charges ("Move Costs"), are amortized over periods ranging from one to 30 years, and are included in depreciation and amortization in the accompanying Consolidated Statements of Operations. Payments that are made to a customer's current records management vendor in order to terminate the customer's existing contract with that vendor, or direct payments to a customer ("Permanent Withdrawal Fees"), are amortized over periods ranging from one to 15 years and are included in storage and service revenue in the accompanying Consolidated Statements of Operations. Move Costs and Permanent Withdrawal Fees are collectively referred to as "Customer Inducements". If the customer terminates its relationship with us, the unamortized carrying value of the Customer Inducement intangible asset is charged to expense or revenue. However, in the event of such termination, we generally collect, and record as income, permanent removal fees that generally equal or exceed the amount of the unamortized Customer Inducement intangible asset.

Other intangible assets, including noncompetition agreements and trademarks, are capitalized and amortized over periods ranging from five to 10 years.

The components of our finite-lived intangible assets as of December 31, 2015 and June 30, 2016 are as follows:



	December 31, 2015							June 30, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationship intangible assets and Customer Inducements	$	937,174	$	(333,860	)	$	603,314	$	1,663,678	$	(352,869	)	$	1,310,809
Core Technology(1)	3,370		(3,370		)	—		1,625		(1,625		)	—
Trademarks and Non-Compete Agreements(1)	7,741		(4,955		)	2,786		24,448		(6,164		)	18,284
Total	$	948,285	$	(342,185	)	$	606,100	$	1,689,751	$	(360,658	)	$	1,329,093

_______________________________________________________________________________


(1)	Included in Other, a component of Other Assets, net in the accompanying Consolidated Balance Sheets.

Amortization expense associated with finite-lived intangible assets and deferred financing costs for the three and six months ended June 30, 2015 and 2016 is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
Amortization expense associated with finite-lived intangible assets and deferred financing costs	$	13,593	$	24,395	$	26,845	$	38,958

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

c. Stock-Based Compensation

We record stock-based compensation expense, utilizing the straight-line method, for the cost of stock options, restricted stock units ("RSUs"), performance units ("PUs") and shares of stock issued under our employee stock purchase plan ("ESPP") (together, "Employee Stock-Based Awards").

Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2015 was $7,921 ($5,467 after tax or $0.03 per basic and diluted share) and $14,777 ($10,413 after tax or $0.05 per basic and diluted share), respectively. Stock-based compensation expense for Employee Stock-Based Awards for the three and six months ended June 30, 2016 was $9,028 ($7,011 after tax or $0.03 per basic and diluted share) and $15,913 ($11,925 after tax or $0.05 per basic and diluted share), respectively.

Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying Consolidated Statements of Operations is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
Cost of sales (excluding depreciation and amortization)	$	46	$	25	$	91	$	52
Selling, general and administrative expenses	7,875		9,003		14,686		15,861
Total stock-based compensation	$	7,921	$	9,028	$	14,777	$	15,913

The benefits associated with the tax deductions in excess of recognized compensation cost are required to be reported as financing activities in the accompanying Consolidated Statements of Cash Flows. This requirement impacts reported operating cash flows and reported financing cash flows. As a result, net financing cash flows included $260 and $29 for the six months ended June 30, 2015 and 2016, respectively, from the benefit of tax deductions compared to recognized compensation cost. The tax benefit of any resulting excess tax deduction increases the Additional Paid-in Capital ("APIC") pool. Any resulting tax deficiency is deducted from the APIC pool.

Stock Options

A summary of our stock options outstanding as of June 30, 2016 by vesting terms is as follows:



	June 30, 2016
	Stock Options Outstanding	% of Stock Options Outstanding
Three-year vesting period (10 year contractual life)	2,856,930	70.1	%
Five-year vesting period (10 year contractual life)	948,752	23.3	%
Ten-year vesting period (12 year contractual life)	271,138	6.6	%
	4,076,820

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

The weighted average fair value of stock options granted for the six months ended June 30, 2015 and 2016 was $4.99 and $2.49 per share, respectively. These values were estimated on the date of grant using the Black-Scholes stock option pricing model. The weighted average assumptions used for grants in the respective period are as follows:



	Six Months Ended June 30,
Weighted Average Assumptions	2015		2016
Expected volatility	28.6	%	27.2	%
Risk-free interest rate	1.70	%	1.32	%
Expected dividend yield	5	%	7	%
Expected life	5.5 years		5.6 years

Expected volatility is calculated utilizing daily historical volatility over a period that equates to the expected life of the stock option. The risk-free interest rate was based on the United States Treasury interest rates whose term is consistent with the expected life (estimated period of time outstanding) of the stock options. Expected dividend yield is considered in the stock option pricing model and represents our current annualized expected per share dividends over the current trade price of our common stock. The expected life of the stock options granted is estimated using the historical exercise behavior of employees.

A summary of stock option activity for the six months ended June 30, 2016 is as follows:



	Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Average Intrinsic Value
Outstanding at December 31, 2015	3,688,814		$	27.79
Granted	1,408,788		33.88
Exercised	(998,993	)	23.94
Forfeited	(10,526	)	34.16
Expired	(11,263	)	30.60
Outstanding at June 30, 2016	4,076,820		$	30.81	6.91	$	39,796
Options exercisable at June 30, 2016	1,897,278		$	25.70	4.34	$	27,818
Options expected to vest	2,030,097		$	35.27	9.15	$	11,180

The aggregate intrinsic value of stock options exercised for the three and six months ended June 30, 2015 and 2016 is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
Aggregate intrinsic value of stock options exercised	$	1,716	$	9,926	$	5,883	$	11,359

Restricted Stock Units

Under our various equity compensation plans, we may also grant RSUs. Our RSUs generally have a vesting period of between three and five years from the date of grant. However, RSUs granted to our non-employee directors in 2015 and thereafter vest immediately upon grant.

All RSUs accrue dividend equivalents associated with the underlying stock as we declare dividends. Dividends will generally be paid to holders of RSUs in cash upon the vesting date of the associated RSU and will be forfeited if the RSU does not vest. The fair value of RSUs is the excess of the market price of our common stock at the date of grant over the purchase price (which is typically zero).

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

Cash dividends accrued and paid on RSUs for the three and six months ended June 30, 2015 and 2016 are as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
Cash dividends accrued on RSUs	$	631	$	616	$	1,301	$	1,247
Cash dividends paid on RSUs	571		196		2,300		1,831

The fair value of RSUs vested during the three and six months ended June 30, 2015 and 2016 is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
Fair value of RSUs vested	$	3,600	$	2,807	$	19,184	$	17,785

A summary of RSU activity for the six months ended June 30, 2016 is as follows:



	RSUs		Weighted- Average Grant-Date Fair Value
Non-vested at December 31, 2015	1,217,597		$	33.68
Granted	596,401		31.26
Vested	(528,210	)	33.67
Forfeited	(33,563	)	34.31
Non-vested at June 30, 2016	1,252,225		$	32.51

Performance Units

Under our various equity compensation plans, we may also make awards of PUs. For the majority of outstanding PUs, the number of PUs earned is determined based on our performance against predefined targets of revenue and return on invested capital ("ROIC"). The number of PUs earned may range from 0% to 200% of the initial award. The number of PUs earned is determined based on our actual performance as compared to the targets at the end of a three-year performance period. Certain PUs that we grant will be earned based on a market condition associated with the total return on our common stock in relation to a subset of the Standard & Poor's 500 Index rather than the revenue and ROIC targets noted above. The number of PUs earned based on this market condition may range from 0% to 200% of the initial award.

All of our PUs will be settled in shares of our common stock and are subject to cliff vesting three years from the date of the original PU grant. PUs awarded to employees who terminate their employment during the three-year performance period and on or after attaining age 55 and completing 10 years of qualifying service are eligible for pro-rated vesting, subject to the actual achievement against the predefined targets or a market condition as discussed above, based on the number of full years of service completed following the grant date (but delivery of the shares remains deferred). As a result, PUs are generally expensed over the three-year performance period.

All PUs accrue dividend equivalents associated with the underlying stock as we declare dividends. Dividends will generally be paid to holders of PUs in cash upon the settlement date of the associated PU and will be forfeited if the PU does not vest.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

Cash dividends accrued and paid on PUs for the three and six months ended June 30, 2015 and 2016 are as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
Cash dividends accrued on PUs	$	214	$	263	$	425	$	525
Cash dividends paid on PUs	—		—		1,015		645

During the six months ended June 30, 2016, we issued 221,662 PUs. The majority of our PUs are earned based on our performance against revenue and ROIC targets during their applicable performance period; therefore, we forecast the likelihood of achieving the predefined revenue and ROIC targets in order to calculate the expected PUs to be earned. We record a compensation charge based on either the forecasted PUs to be earned (during the performance period) or the actual PUs earned (at the three-year anniversary of the grant date) over the vesting period for each of the awards. For PUs earned based on a market condition, we utilize a Monte Carlo simulation to fair value these awards at the date of grant, and such fair value is expensed over the three-year performance period. As of June 30, 2016, we expected 0%, 100% and 100% achievement of the predefined revenue and ROIC targets associated with the awards of PUs made in 2014, 2015 and 2016, respectively.

The fair value of earned PUs that vested during the three and six months ended June 30, 2015 and 2016 is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
Fair value of earned PUs that vested	$	44	$	1,174	$	2,107	$	5,255

A summary of PU activity for the six months ended June 30, 2016 is as follows:



	Original PU Awards		PU Adjustment(1)		Total PU Awards		Weighted- Average Grant-Date Fair Value
Non-vested at December 31, 2015	520,764		(86,959	)	433,805		$	34.11
Granted	221,662		—		221,662		35.11
Vested	(148,403	)	—		(148,403	)	35.41
Forfeited/Performance or Market Conditions Not Achieved	(2,106	)	(34,079	)	(36,185	)	44.36
Non-vested at June 30, 2016	591,917		(121,038	)	470,879		$	33.38

_______________________________________________________________________________


(1)	Represents an increase or decrease in the number of original PUs awarded based on either the final performance criteria or market condition achievement at the end of the performance period of such PUs or a change in estimated awards based on the forecasted performance against the predefined targets.

Employee Stock Purchase Plan

We offer an ESPP in which participation is available to substantially all United States and Canadian employees who meet certain service eligibility requirements. The price for shares purchased under the ESPP is 95% of the market price of our common stock at the end of the offering period, without a look-back feature. As a result, we do not recognize compensation expense for the ESPP shares purchased. For the six months ended June 30, 2015 and 2016, there were 59,569 shares and 56,662 shares, respectively, purchased under the ESPP. As of June 30, 2016, we had 781,767 shares available under the ESPP.

_______________________________________________________________________________

As of June 30, 2016, unrecognized compensation cost related to the unvested portion of our Employee Stock-Based Awards was $47,863 and is expected to be recognized over a weighted-average period of 2.1 years.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

We generally issue shares of our common stock for the exercises of stock options, RSUs, PUs and shares of our common stock under our ESPP from unissued reserved shares.

d. Income (Loss) Per Share—Basic and Diluted

Basic income (loss) per common share is calculated by dividing income (loss) by the weighted average number of common shares outstanding. The calculation of diluted income (loss) per share is consistent with that of basic income (loss) per share but gives effect to all potential common shares (that is, securities such as stock options, warrants or convertible securities) that were outstanding during the period, unless the effect is antidilutive.

The calculation of basic and diluted income (loss) per share for the three and six months ended June 30, 2015 and 2016 is as follows:



	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2016			2015		2016
Income (loss) from continuing operations	$	54,007	$	(14,720	)	$	95,746	$	48,321
Total income (loss) from discontinued operations	$	—	$	1,587		$	—	$	1,587
Net income (loss) attributable to Iron Mountain Incorporated	$	53,330	$	(13,968	)	$	94,426	$	48,806

Weighted-average shares—basic	210,699,000		246,387,000			210,468,000		228,957,000
Effect of dilutive potential stock options	958,714		—			1,091,022		622,293
Effect of dilutive potential RSUs and PUs	419,002		—			603,880		450,100
Weighted-average shares—diluted	212,076,716		246,387,000			212,162,902		230,029,393

Earnings (losses) per share—basic:
Income (loss) from continuing operations	$	0.26	$	(0.06	)	$	0.45	$	0.21
Total income (loss) from discontinued operations	$	—	$	0.01		$	—	$	0.01
Net income (loss) attributable to Iron Mountain Incorporated	$	0.25	$	(0.06	)	$	0.45	$	0.21

Earnings (losses) per share—diluted:
Income (loss) from continuing operations	$	0.25	$	(0.06	)	$	0.45	$	0.21
Total income (loss) from discontinued operations	$	—	$	0.01		$	—	$	0.01
Net income (loss) attributable to Iron Mountain Incorporated	$	0.25	$	(0.06	)	$	0.45	$	0.21

Antidilutive stock options, RSUs and PUs, excluded from the calculation	1,335,373		1,594,475			846,803		2,208,135

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

e. Income Taxes

We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. Our effective tax rate is subject to variability in the future due to, among other items: (1) changes in the mix of income between our qualified REIT subsidiaries and our domestic taxable REIT subsidiaries ("TRSs"), as well as among the jurisdictions in which we operate; (2) tax law changes; (3) volatility in foreign exchange gains and losses; (4) the timing of the establishment and reversal of tax reserves; and (5) our ability to utilize net operating losses that we generate.

Our effective tax rates for the three and six months ended June 30, 2015 were 12.1% and 19.6%, respectively. For the three months ended June 30, 2016, we had a net loss from continuing operations before provision of income taxes of $3,881 and a provision for income taxes of $10,839; as such our effective tax rate for the three months ended June 30, 2016 is not meaningful. Our effective tax rate for the six months ended June 30, 2016 was 32.0%. The primary reconciling items between the federal statutory tax rate of 35.0% and our overall effective tax rates in the three and six months ended June 30, 2015 were the benefit derived from the dividends paid deduction, differences in the rates of tax at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates, and state income taxes. The primary reconciling items between the federal statutory tax rate of 35.0% and our overall effective tax rates in the three and six months ended June 30, 2016 were the benefit derived from the dividends paid deduction and differences in the rates of tax at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates.

f. Concentrations of Credit Risk

Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents (including money market funds and time deposits) and accounts receivable. The only significant concentrations of liquid investments as of December 31, 2015 and June 30, 2016 relate to cash and cash equivalents. At December 31, 2015, we had time deposits with four global banks. At June 30, 2016, we had time deposits with five global banks. We consider the global banks to be large, highly-rated investment-grade institutions. As of December 31, 2015 and June 30, 2016, our cash and cash equivalents were $128,381 and $236,989, respectively, including time deposits amounting to $18,645 and $18,743, respectively.

g. Fair Value Measurements

Our financial assets or liabilities that are carried at fair value are required to be measured using inputs from the three levels of the fair value hierarchy. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The three levels of the fair value hierarchy are as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

The assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2015 and June 30, 2016, respectively, are as follows:



			Fair Value Measurements at December 31, 2015 Using
Description	Total Carrying Value at December 31, 2015		Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Time Deposits(1)	$	18,645	$	—		$	18,645		$	—
Trading Securities	10,371		9,514		(2)	857		(1)	—
Available-for-Sale Securities	624		624		(2)	—			—



			Fair Value Measurements at June 30, 2016 Using
Description	Total Carrying Value at June 30, 2016		Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Time Deposits(1)	$	18,743	$	—		$	18,743		$	—
Trading Securities	10,357		9,877		(2)	480		(1)	—

_______________________________________________________________________________


(1)	Time deposits and certain trading securities are measured based on quoted prices for similar assets and/or subsequent transactions.


(2)	Available-for-sale securities and certain trading securities are measured at fair value using quoted market prices.

Disclosures are required in the financial statements for items measured at fair value on a non-recurring basis. We did not have any material items that are measured at fair value on a non-recurring basis at December 31, 2015 and June 30, 2016, except goodwill calculated based on Level 3 inputs, as more fully disclosed in Note 2.b., and the assets and liabilities acquired through acquisitions, as more fully disclosed in Note 4.

The fair value of our long-term debt, which was determined based on either Level 1 inputs or Level 3 inputs, is disclosed in Note 5. Long-term debt is measured at cost in our Consolidated Balance Sheets as of December 31, 2015 and June 30, 2016.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

h. Accumulated Other Comprehensive Items, Net

The changes in accumulated other comprehensive items, net for the three months ended June 30, 2015 and 2016, respectively, are as follows:



	Foreign Currency Translation Adjustments			Market Value Adjustments for Securities		Total
Balance as of March 31, 2015	$	(132,084	)	$	1,002	$	(131,082	)
Other comprehensive income (loss):
Foreign currency translation adjustments	1,332			—		1,332
Total other comprehensive income (loss)	1,332			—		1,332
Balance as of June 30, 2015	$	(130,752	)	$	1,002	$	(129,750	)



	Foreign Currency Translation Adjustments			Market Value Adjustments for Securities		Total
Balance as of March 31, 2016	$	(152,160	)	$	—	$	(152,160	)
Other comprehensive income (loss):
Foreign currency translation adjustments	2,871			—		2,871
Total other comprehensive income (loss)	2,871			—		2,871
Balance as of June 30, 2016	$	(149,289	)	$	—	$	(149,289	)

The changes in accumulated other comprehensive items, net for the six months ended June 30, 2015 and 2016, respectively, are as follows:



	Foreign Currency Translation Adjustments			Market Value Adjustments for Securities		Total
Balance as of December 31, 2014	$	(76,010	)	$	979	$	(75,031	)
Other comprehensive (loss) income:
Foreign currency translation adjustments	(54,742		)	—		(54,742		)
Market value adjustment for securities	—			23		23
Total other comprehensive (loss) income	(54,742		)	23		(54,719		)
Balance as of June 30, 2015	$	(130,752	)	$	1,002	$	(129,750	)



	Foreign Currency Translation Adjustments			Market Value Adjustments for Securities			Total
Balance as of December 31, 2015	$	(175,651	)	$	734		$	(174,917	)
Other comprehensive income (loss):
Foreign currency translation adjustments	26,362			—			26,362
Market value adjustment for securities	—			(734		)	(734		)
Total other comprehensive income (loss)	26,362			(734		)	25,628
Balance as of June 30, 2016	$	(149,289	)	$	—		$	(149,289	)

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

i. Other Expense (Income), Net

Other expense (income), net for the three and six months ended June 30, 2015 and 2016 are as follows:



	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2016			2015		2016
Foreign currency transaction losses (gains), net	$	1,656	$	17,193		$	23,922	$	4,651
Debt extinguishment expense	—		9,283			—		9,283
Other, net	348		(835		)	431		(230		)
	$	2,004	$	25,641		$	24,353	$	13,704

j. Property, Plant and Equipment and Long-Lived Assets

During the three and six months ended June 30, 2015, we capitalized $6,395 and $12,435 of costs, respectively, associated with the development of internal use computer software projects. During the three and six months ended June 30, 2016, we capitalized $5,135 and $8,538 of costs, respectively, associated with the development of internal use computer software projects.

Consolidated loss on disposal/write-down of property, plant and equipment (excluding real estate), net for the three and six months ended June 30, 2015 was $515 and $848, respectively, which was primarily associated with the write-off of certain property associated with our North American Records and Information Management Business segment. Consolidated gain on disposal/write-down of property, plant and equipment (excluding real estate), net for the three and six months ended June 30, 2016 was $626 and $1,077, respectively, which was primarily associated with the retirement of leased vehicles accounted for as capital lease assets within our North American Records and Information Management Business segment.

k. New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 provides guidance for management to reassess revenue recognition as it relates to: (1) transfer of control, (2) variable consideration, (3) allocation of transaction price based on relative standalone selling price, (4) licenses, (5) time value of money, and (6) contract costs. Further disclosures will be required to provide a better understanding of revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ("ASU 2015-14"). ASU 2015-14 deferred the effective date of ASU 2014-09 for one year, making it effective for us on January 1, 2018, with early adoption permitted as of January 1, 2017. We will adopt ASU 2014-09 as of January 1, 2018. We are currently evaluating the impact ASU 2014-09 will have on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles of current United States auditing standards. Specifically, the amendments (1) provide a definition of the term “substantial doubt”, (2) require an evaluation every reporting period, including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is still present, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014-15 is effective for us on January 1, 2017, with early adoption permitted. We will adopt ASU 2014-15 as of January 1, 2017. We do not believe that the adoption of ASU 2014-15 will have an impact on our consolidated financial statements.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015‑02”). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. We adopted ASU 2015-02 on January 1, 2016. The adoption of ASU 2015-02 did not impact our consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"). ASU No. 2015-17 eliminates the requirement for reporting entities to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, reporting entities will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments in ASU 2015-17 may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. ASU 2015-17 is effective for us on January 1, 2017, with early adoption permitted. We are currently evaluating the impact ASU 2015-17 will have on our consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The pronouncement also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for us on January 1, 2018. We do not believe that the adoption of ASU 2016-01 will have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU 2016-02 also will require certain qualitative and quantitative disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 will be effective for us on January 1, 2019, with early adoption permitted. We are currently evaluating the impact ASU 2016-02 will have on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting ("ASU 2016-07"). ASU 2016-07 eliminates the requirement for a reporting entity to apply the equity method of accounting retrospectively when they obtain significant influence over a previously held investment. Furthermore, under ASU 2016-07, for any available-for-sale securities that become eligible for the equity method of accounting, the unrealized gain or loss recorded within other comprehensive income (loss) associated with the securities should be recognized in earnings at the date the investment initially qualifies for the use of the equity method. We adopted ASU 2016-07 on April 1, 2016. The adoption of ASU 2016-07 did not have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation-Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under ASU 2016-09, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the statement of operations and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. Additionally, under ASU 2016-09, excess tax benefits should be classified along with other income tax cash flows as an operating activity. ASU 2016-09 will be effective for us on January 1, 2017, with early adoption permitted. We are currently evaluating the impact ASU 2016-09 will have on our consolidated financial statements.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(3) Derivative Instruments and Hedging Activities

Historically, we have entered into separate forward contracts to hedge our exposures in Euros, British pounds sterling and Australian dollars. As of December 31, 2015 and June 30, 2016, however, we had no forward contracts outstanding.

Net cash payments included in cash from operating activities related to settlements associated with foreign currency forward contracts for the three and six months ended June 30, 2015 and 2016 are as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
Net cash payments	$	12,368	$	—	$	29,188	$	—

(Gains) losses for our derivative instruments for the three and six months ended June 30, 2015 and 2016 are as follows:



		Amount of (Gain) Loss Recognized in Income on Derivatives
		Three Months Ended June 30,					Six Months Ended June 30,
Derivatives Not Designated as Hedging Instruments	Location of (Gain) Loss Recognized in Income on Derivative	2015			2016		2015		2016
Foreign exchange contracts	Other expense (income), net	$	(8,119	)	$	—	$	20,414	$	—

We have designated a portion of our previously outstanding 6³/₄% Notes and Euro denominated borrowings by IMI under our Revolving Credit Facility (discussed more fully in Note 5) as a hedge of net investment of certain of our Euro denominated subsidiaries. For the six months ended June 30, 2015 and 2016, we designated, on average, 35,786 and 30,102 Euros, respectively, of the previously outstanding 6³/₄% Notes and Euro denominated borrowings by IMI under our Revolving Credit Facility as a hedge of net investment of certain of our Euro denominated subsidiaries. As a result, we recorded the following foreign exchange (losses) gains, net of tax, related to the change in fair value of such debt due to currency translation adjustments, which is a component of accumulated other comprehensive items, net:



	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2016		2015		2016
Foreign exchange (losses) gains	$	(1,464	)	$	754	$	3,466	$	(588	)
Less: Tax (benefit) expense on foreign exchange (losses) gains	—			—		—		—
Foreign exchange (losses) gains, net of tax	$	(1,464	)	$	754	$	3,466	$	(588	)

As of June 30, 2016, cumulative net gains of $16,508, net of tax are recorded in accumulated other comprehensive items, net associated with this net investment hedge.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(4) Acquisitions

We account for acquisitions using the acquisition method of accounting, and, accordingly, the assets and liabilities acquired are recorded at their estimated fair values and the results of operations for each acquisition have been included in our consolidated results from their respective acquisition dates. Cash consideration for our various acquisitions in 2016 was primarily provided through borrowings under our Revolving Credit Facility and Bridge Facility (each as defined in Note 5) as well as cash and cash equivalents on-hand.

a. Acquisition of Recall

On May 2, 2016 (Sydney, Australia time), we completed the Recall Transaction. At the closing of the Recall Transaction, we paid approximately $331,800 and issued 50,233,412 shares of our common stock which, based on the closing price of our common stock as of April 29, 2016 (the last day of trading on the NYSE prior to the closing of the Recall Transaction) of $36.53 per share, resulted in a total purchase price to Recall shareholders of approximately $2,166,900.

Regulatory Approvals

In connection with the acquisition of Recall, we sought regulatory approval of the Recall Transaction from the United States Department of Justice (the “DOJ”), the Australian Competition and Consumer Commission (the “ACCC”), the Canada Competition Bureau (the “CCB”), and the United Kingdom Competition and Markets Authority (the “CMA”).

As part of the regulatory approval process, we agreed to make certain divestments, which are described below in greater detail, in order to address competition concerns raised by the DOJ, the ACCC, the CCB and the CMA in respect of the Recall Transaction (the “Divestments”).

See Note 10 for additional information regarding the Divestments, including the presentation of the Divestments in our Consolidated Balance Sheet as of June 30, 2016, our Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2016, respectively, and our Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2016, respectively.

Divestments and Management Pending Sales

i. United States

The DOJ’s approval of the Recall Transaction was subject to the following divestments being made by us following the closing of the Recall Transaction:

•

Recall’s records and information management facilities, including all associated tangible and intangible assets, in the following 13 United States cities: Buffalo, New York; Charlotte, North Carolina; Detroit, Michigan; Durham, North Carolina; Greenville/Spartanburg, South Carolina; Kansas City, Kansas/Missouri; Nashville, Tennessee; Pittsburgh, Pennsylvania; Raleigh, North Carolina; Richmond, Virginia; San Antonio, Texas; Tulsa, Oklahoma; and San Diego, California (the “Initial United States Divestments”); and


•	Recall’s records and information management facility in Seattle, Washington and certain of Recall’s records and information management facilities in Atlanta, Georgia, including in each case associated tangible and intangible assets (the “Seattle/Atlanta Divestments”).

On May 4, 2016, we completed the sale of the Initial United States Divestments to Access CIG, LLC, a privately held provider of information management services throughout the United States (“Access CIG”), for total consideration of approximately $80,000, subject to adjustments (the “Access Sale”). Of the total consideration, we received $55,000 in cash proceeds upon closing of the Access Sale, and we are entitled to receive up to $25,000 of additional cash proceeds on the 27-month anniversary of the closing of the Access Sale. See Note 10 for additional information regarding the Access Sale.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(4) Acquisitions (Continued)

The Seattle/Atlanta Divestments will be effected by way of a sale of the tangible and intangible assets associated with the relevant facilities, which include warehouse space as well as customer contracts. We are in discussions with potential buyers for the Seattle/Atlanta Divestments. We have agreed to place the assets and employees subject to the Seattle/Atlanta Divestments in a hold separate arrangement until the Seattle/Atlanta Divestments are completed.

ii. Australia

The ACCC approved the Recall Transaction after accepting an undertaking from us pursuant to section 87B of the Australian Competition and Consumer Act 2010 (Cth) (the “ACCC Undertaking”). Pursuant to the ACCC Undertaking, we will divest the majority of our Australian operations as they existed prior to the closing of the Recall Transaction by way of a share sale, which effectively involves the sale of our Australian business (as it existed prior to the closing of the Recall Transaction) other than our data management business throughout Australia and our records and information management business in the Northern Territory of Australia, except in relation to customers who have holdings in other Australian states or territories (the “Australia Divestment Business” and, with respect to the portion of our Australia business that is not subject to divestment, the “Australia Retained Business”). Pursuant to the ACCC Undertaking, we may only sell the Australia Divestment Business to a person who is independent of the combined company and has been approved by the ACCC (the “Approved Purchaser”).

The ACCC Undertaking provides that we will sell the Australia Divestment Business within a set period of time following the closing of the Recall Transaction. If the sale of the Australia Divestment Business is not completed within that period, we must appoint an independent sale agent approved by the ACCC to effect the sale of the Australia Divestment Business. There is no minimum price at which the independent sale agent must sell the Australia Divestment Business.

Until the Australia Divestment Business is sold to the Approved Purchaser, we are required to preserve the Australia Divestment Business as a separate and independently viable going concern. In addition, until the Australia Divestment Business is sold to the Approved Purchaser, the Australia Divestment Business is being managed by an independent manager selected by us and approved by the ACCC. We are in discussions with potential buyers for the Australia Divestment Business.

iii. Canada

The CCB approved the Recall Transaction on the basis of the registration of a consent agreement with us pursuant to sections 92 and 105 of the Competition Act (R.S.C., 1985, c. C-34) (the “CCB Consent Agreement”). The CCB Consent Agreement requires us to divest the following assets:

•

Recall’s record and information management facilities, including associated tangible and intangible assets and employees, in Edmonton, Alberta and Montreal (Laval), Quebec and certain of Recall’s record and information management facilities, including all associated tangible and intangible assets and employees, in Calgary, Alberta and Toronto, Ontario, (the “Recall Canadian Divestments”); and


•	One of our records and information management facilities in Vancouver (Burnaby), British Columbia and one of our records and information management facilities in Ottawa, Ontario, including associated tangible and intangible assets and employees (the “Iron Mountain Canadian Divestments”).

The Recall Canadian Divestments and the Iron Mountain Canadian Divestments (or collectively, the “Canadian Divestments”) will be affected by way of a sale of only the tangible and intangible assets associated with the relevant facilities, which include warehouse space as well as customer contracts. Under the CCB Consent Agreement, the assets subject of the Canadian Divestments will be acquired by a single buyer to be approved by the Commissioner of Competition (the “Commissioner”).

Table of Contents

IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(4) Acquisitions (Continued)